How Does Estate Tax Affect Farms?

Estate planning for farms is different from making a standard estate plan. Not only do you want to ensure that your farm is able to pass quickly on to new owners, but you also need to take steps to protect the farm from being lost as the land and other assets transfer onto the next generation. Biddinger & Estelle can explain to you the special rules applicable to the transfer of farmland and can provide you with insight on the steps that you need to take to ensure you have done everything possible to protect the farm that should serve as your legacy.

You need to take action now to protect your farm if you have not already done so, because you never know when something could happen to you. Your land is at risk if you haven’t taken steps to ensure the smooth transfer of the farm to your loved ones and one of the biggest possible sources of loss could be estate tax.

Biddinger & Estelle can explain the special rules for farmland if you live in or around Michigan’s shoreline communities and you want to pass your farm onto your loved ones. We can also help you to make the types of plans that you need to reduce or avoid estate tax so you don’t have to worry about your farm being lost due to a big bill from the IRS.

How Does Estate Tax Affect Farms?

Estate tax can be a major burden for the owners of any type of property, because a substantial amount of money may be owed by an estate upon the death of a property owner. These taxes are charged on larger estates and are paid out of estate assets. The taxes are not charged if you leave money to your spouse but they are assessed when money is left to someone else such as your children or other friends or relatives.

The big problem for family farms is that the estate may appear to be large because the farmland has appreciated in value… even if the family has few liquid assets. If land is worth several million dollars, the farmer and his family likely do not have the cash to pay the taxes on the land. This could result in the farmer and his family being forced to sell the land that is a key part of their farming operation. This can end up with a family farm becoming too small to continue operations, which essentially forces heirs or beneficiaries to sell the land to big developers or large farms since they would not be able to continue operations due to the burden of estate tax.

While there are special rules for family farms, including a special use valuation that allows for the value of a person’s estate to be reduced for calculating estate tax as long as the land continues to be farmed for at least 10 years after the landowners death, these rules have strict criteria including requiring family members to meet multiple tests. Because not all families are able to qualify for the special use valuations, farmland is still lost and family farms are still sold just to pay estate tax. The Washington Post, for example, told stories of farmers who had to sell hundreds of acres of land and indicated that in 2013, 120 families had to pay estate tax because of their family farms.

If you are the owner of a farm, it is vital that you understand exactly how the estate tax could impact you. You do not want your loved ones to be forced to sell land, especially if that land has been in your family for generations, just because your death triggers a big tax bill. You should work with an experienced attorney to try to find out what your options are for passing on your farmland in a way that minimizes estate tax so you can protect your land from being lost. It is best to plan ahead because you never know when something could happen to you that affects the value of your farmland.

Getting Help with Estate Planning for Farms

Biddinger & Estelle has assisted many farm owners in counties from St. Clair to Presque Isle along Michigan’s eastern shoreline, including the Thumb and northeast coast. If you or someone that you love owns a farm and you want help to ensure the land transfers on to the desired new owners and is not lost due to estate tax, give us a call at (989) 872-5601 or contact us online today to get your plans in place.

Rachel is originally from Walled Lake, Michigan. She graduated from Walled Lake Central High School in 2006. After graduation she attended Central Michigan University in Mount Pleasant, where she earned her degree in History and Social Sciences in 2010. Rachel then went on to attend Thomas M. Cooley Law School in Ann Arbor, graduating Magna Cum Laude. Rachel is a member of the State Bar of Michigan and the American Academy of Estate Planning Attorneys. Rachel now resides in Cass City.

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